In 1993 Daimler-Benz Became the First German Company to Be

question 12

Essay

In 1993 Daimler-Benz became the first German company to be listed on the New York Stock Exchange (NYSE). This forced Daimler-Benz to file a reconciliation statement with U.S. GAAP (Form 20-F). Because Daimler-Benz drew on hidden reserves during the recession of 1993, its German-reported profit (in Deutsche mark or DM) was a small, but positive, DM615 million. It translated into a DM1.84 billion loss according to U.S. GAAP. Daimler's 1993 net worth translates from DM18.15 billion under German rules to DM26.28 billion under U.S. GAAP.
a. Explain what happened on earnings.
b. Explain what happened on book value (net worth).
c. In a profitable year, Daimler-Benz decides to increase its hidden reserves. How would this decision affect earnings calculated according to U.S. and German GAAP?
d. Same question for book value.

---

Definitions:

Cash Collections

The process of receiving and recording the amount of money received from customers or clients, typically in the context of accounts receivable.

Sales Budget

An estimate of the expected sales revenue for a period, which serves as a foundation for a company's production and marketing planning.

Master Budget

An inclusive financial planning document that consolidates all individual budgets related to sales, cost of goods sold, operations, overheads, and capital expenditures.

Credit Sales

Sales made by a business where payment is delayed as per agreed terms with the buyer.